SAP is one of the enterprise software industry's biggest bellwethers, and as a result, its financial results provide insight not just into its own execution but also the broader trends and attitudes among customers.
This week, SAP released preliminary fourth-quarter and year-end results that slightly missed analysts' expectations, but a conference call to discuss the numbers provided some interesting color. Here's a look.
Rising 'Ambition'
SAP now has a €3 billion cloud business, with new bookings up 41 percent in Q4 and 30 percent for the year. Its "cloud backlog"—which refers to contracted payments not yet invoiced—rose 47 percent year over year to €5.4 billion. As a result, SAP is raising its "ambition" for cloud revenue in 2020 to €8 billion to €8.5 billion, CEO Bill McDermott said on the call.
It's not clear how much the numbers are influenced by SAP's Cloud Extension policy, which was rolled out in 2013 and allows customers to shift on-premises maintenance payments into cloud subscriptions. In any event, whether the growth is coming from truly new business or maintenance swaps, it says something positive about SAP customer attitudes toward cloud adoption.
S/4HANA Heats Up
SAP now has 5,400 customers for S/4HANA, its next-generation ERP suite based on the HANA in-memory platform. While the numbers are growing quickly, that total accounts for just 15 percent of SAP's installed base. A recent survey by the Americas' SAP Users Group on S/4HANA adoption found that while SAP has clearly communicated that S/4HANA is the nucleus of innovation going forward, it may have work yet to do defining clear use cases and reasons to migrate.
Big brand names that selected S/4HANA in Q4 include Apple, Nike and Coca-Cola, McDermott noted on the call. At first blush this is impressive until you consider that all three are long-time SAP ERP users, and it wasn't clear from the call whether their S/4HANA deployments are large-scale or more on the tire-kicking side for now.
There are about 550 S/4HANA customers live on financials and logistics, and about 2,500 projects ongoing, sales chief Rob Enslin said on the call. SAP will also showcase the multitenant public cloud version of S/4HANA at an event next month and expects that deployment option to drive growth in 2017.
Human Investments
SAP made about 1,700 full-time hires in Q4 and the bulk were in research and development and cloud delivery, CFO Luka Mucic said on the call. That was a change from Q3 when most hires were in sales and marketing. In 2017, SAP will continue to focus hiring on R&D but plans to taper back in 2018 after those investments are made.
The hiring strategy emphases homegrown talent rather than poaching from rival vendors, McDermott said:
I think one of the things we are laser focused on is bringing people into the Company that can code software or sale software and creating immense learning and training opportunities for these people, so we can get them young at a university and build them in our own culture and our own image. It’s kind of dull, spending your time recruiting from other software companies and then having to reinvent people. We’d rather start fresh and do it right.
Bullish on Blockchain
SAP hasn't made much noise about blockchain but that seems like it's about to change. The vendor is uniquely positioned to help carry customers into the blockchain market, McDermott said:
If you think about banking, identity, compliance security, trade settlement, insurance, smart claims, manufacturing, track and trace, all these industries have a blockchain case. And remember, more than three quarters of the world transactions are running through an SAP system. So, our financials will actually form a very unique blockchain business network.
A safe bet will see SAP team up with longtime partner IBM on blockchain this year, given the latter's major investments in blockchain R&D and consulting.
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